BEA Systems vs Oracle: the Players and the Eventual Winners

The offer made by Oracle to buy BEA Systems for $17.00 a share (total value $6.6 billion) is one that could change the current state of the software development market. Currently BEA Systems’ board is refusing the proposal, stating that it undervalues the company. The stock market thinks also that the price could be higher as the closing price of BEA shares last week was above $18, even is some analysts declared that Oracle proposed price was high.

What benefits could Oracle achieve with this deal? Technically, it will acquire Web server and transaction monitoring software expertise. Even if Oracle has already its own set of products competing with BEA Systems, its technical reputation is a little bit lower in this area. Financially, the acquisition could provide additional revenues, a strategy Oracle has followed these past years with PeopleSoft and other targets. In this area, Oracle seems to transform itself in a Computer Associates-like company, more driven by financial interests than technical capabilities.

Even if it is only a “mid-size” company, BEA Systems is not a small fish in the software market and there are not many companies that can afford to buy it. So what are the other players that could enter this game? Oracle main competitor, SAP, has just announced the acquisition of Business Objects and is usually looking for more business oriented targets. IBM could be interested, but then there is many products overlap between the two companies that will make integration difficult. HP could be another possible acquirer, as it is currently trying to increase the software part of its revenues. Its interest will depend on the price to pay and how its current digestion of former acquisitions like Mercury and Peregrine is progressing. Finally, Computer Associates could also jump in the process if the price is right, but this is difficult as BEA Systems has not released audited financial figures for a long time, due to stock option issues.

In the winners side of this situation, we could certainly find IBM and JBoss, as uncertainty about the future of a company is always a strong topic that buyers will consider when the look for their Web server. Losers will be BEA Systems customers, because company executives will be distracted by the battle and that a change of ownership always rise questions on the future roadmap of the products and the availability of knowledgeable people to provide some support.

There are many probabilities that the following actions of Oracle proposal will be on the financial area. It will be interesting to see if BEA Systems shareholders will resist selling their shares and if Oracle will slightly increase its price so that everybody could look satisfied at the end. Hint: Oracle rarely takes “no” for a correct answer to its bids.

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